The settlement, together with rulings by the Delaware courts, effectively defines the parameters for poison pills. They can be used stop a hostile bid and to cap ownership at relatively low levels, as confirmed by the unsuccessful challenge to Sotheby’s pill earlier this year. But this settlement shows they can’t be used to discourage shareholder voting, which is generally the only antidote to the pill.

A poison pill, more formally known as a shareholder rights plan, prevents any shareholder or group of shareholders working together from acquiring more than a set percentage of a company’s stock: 10% in Allergan’s case. It does this by massively diluting any shareholder involved in the group that crosses the threshold. The definition of when multiple shareholders are a group is quite complex, but it is generally triggered by any arrangement or understanding among them. As a result, to avoid any risk of that massive value loss, large shareholders need to be very careful if they talk to each other.

Allergan is using its pill to fight off the Valeant bid. Pershing is working with Valeant.

When a board opposes a takeover bid, generally the only way around a pill is to unseat the directors. Allergan’s charter permits holders of 25% of its shares to call a special meeting of shareholders and, by a majority vote, remove recalcitrant directors. But its bylaws include a complex procedure for calling the meeting. As Pershing planned to seek shareholder support pursuant to the bylaws, it was concerned that shareholders who wanted to support it might withhold such support because of uncertainties over whether such action would trigger the pill.

When Pershing wasn’t able to get Allergan to clarify its interpretation of its pill, it sued Allergan earlier this month to clear what I called the fog of war. Last week, when granting Pershing’s motion to expedite the case, the Delaware Chancellor said:

“The exercise of the stockholder franchise is a critical right of importance under Delaware law and, indeed, the implementation of stockholder rights plans has often been validated in our jurisprudence, based in large measure on the ability of stockholders to have recourse to the ballot box.”

He then suggested that the parties settle by crafting “an answer that would get to a path where you don’t need any help from me, but I am obviously going to do my job if I need to, to give answers.”

On Friday, Allergan and Pershing did just that, generally agreeing on the clarifications Pershing was asking for.

The lesson from this quickly resolved dispute? Don’t mess with a shareholder vote using a poison pill, even by creating uncertainty. Activists and bidders are entitled to clear sailing in seeking the pill’s only antidote.